Wealth-tax Officer Vs. Ram Autar Prasad Choudhary - Court Judgment

Excerpt:
1. wealth-tax appeals filed by the department in respect of the assessments of the assessee pertaining to the assessment years 1978-79 to 1981-82 and the cross-objections filed by the department for the assessment year 1978-79 were heard together on 16-7-1986. appeals filed by the department in respect of income-tax assessments of the assessee pertaining to the assessment years 1980-81 and 1981-82 were heard on 17-7-1986. after considering the rival submissions, these appeals and the cross-objections are being disposed of by a common order, as the main issue involved in these appeals is the same.2. shri nathmal choudhary, his wife and their son, ram autar choudhary, were members of a mitakshara undivided family. the huf had owned certain movable and immovable properties. shri nathmal choudhary died in 1959, i.e., he died after coming into force of the hindu succession act, 1956. the assessee-huf while filing its wealth-tax return for the assessment year 1978-79 claimed for the first time, that, on the death of nathmal choudhary, one-third share of nathmal choudhary in the joint family properties devolved on his legal heirs by succession and hence what had been left with the huf was only the remaining two-third of the properties and thus the huf was assessable only in respect of two-third of the properties. the wealth-tax returns for the subsequent assessment years, viz., assessment years 1979-80 to 1981-82 were also filed on this basis. in the income-tax returns for the assessment years 1980-81 and 1981-82 too, only two-third of the income of the properties was shown on the ground that the remaining one-third of the income had ceased to belong to the huf on the death of nathmal choudhary when his share in the joint family properties devolved on his legal heirs by succession.3. the main issue to be decided in these appeals is whether the assessee-huf is assessable only in respect of two-third of the properties. the wto (or the ito) was of the view that the assessee-huf was to be held to be the owner of the entire property and as such, it was liable to be taxed in respect of the entire property. the aac, however, did not approve of this view. the aac agreed with the assessee that, on the death of nathmal choudhary, his one-third share in the joint family property devolved on his legal heirs by succession and the joint family continued only with the remaining two-third of the property. thus, according to the aac, the huf was liable to be assessed only in respect of two-third of the property. being aggrieved with this decision of the aac, the department has now come up in appeal before us. the contention of the revenue is that the huf is liable to be assessed in respect of the entire property. the first contention raised by the revenue on this behalf is that it was an error to hold that, on the death of nathmal choudhary, one-third of the joint family property ceased to belong to the assessee-huf. secondly, it has been contended by the department that even if it was to be assumed that, on the death of nathmal choudhary, one-third of the property had gone to his legal heirs by succession, from the conduct of the parties, it was to be inferred that the legal heirs had thrown the property into common hotch-pot of the huf. it is pointed out that all along in the past the assessee-huf had itself shown this property as being assessable in its hands.4. we have considered the matter carefully. we do not find it possible to accept any of the abovestated contentions of the department. on the death of nathmal choudhary, his one-third share in the joint family property devolved on his legal heirs by succession and that share ceased to be the property of the assessee joint family any more.nathmal choudhary had died after coming into force of the hindu succession act. the hindu succession act made a radical departure in the devolution of interest of a coparcener in the joint family property on his death. section 6 of the hindu succession act reads, omitting portions which are not relevant for our purpose : 6. when a male hindu dies after the commencement of this act, having at the time of his death an interest in a mitakshara coparcenary property, his interest in the property shall devolve by survivorship upon the surviving members of the coparcenary and not in accordance with this act : provided that, if the deceased had left him surviving a female relative specified in class i of the schedule or a male relative, specified in that class who claims, through such female relative, the interest of the deceased in the mitakshara coparcenary property shall devolve by testamentary or intestate succession, as the case may be, under this act and not by survivorship. explanation i : for the purposes of this section, the interest of a hindu mitakashara coparcener shall be deemed to be the share in the property that would have been allotted to him if a partition of the property had taken place immediately before his death, irrespective of whether he was entitled to claim partition or not.devolution by survivorship was preserved except in cases covered by the proviso. in this case, however, the proviso becomes applicable in view of the fact that nathmal choudhary had died leaving him surviving his wife, a female relative specified in class i of the schedule of the hindu succession act. hence, the share of the deceased coparcener, which would have been allotted to him on partition, if a partition had taken place immediately before his death, is to devolve on his legal heirs, i.e., his wife and his son, by succession. the huf is to continue but the share of the deceased coparcener in the properties of the huf having devolved on his heirs by intestate succession, goes out of the property of the undivided family. the huf continues to be the owner of the remaining two-third of the property. the department is obviously in error when it says that on the death of nathmal choudhary, his one-third share in the joint family property did not cease to belong to the assessee-huf and that the huf was still the owner of the entire property. we will draw attention to the decision of the gujarat high court in the case of cwt v. kantilal manilal [1973] 90 itr 289. in that case one k, his wife p, their unmarried daughter r, their son d, d's wife u, were members of the huf owning properties. d died. in the wealth-tax assessment of the assessee-huf, the tribunal held that on the death of d, his one-third share in the joint family properties devolved on u and p and his one-third share ceased to belong to the assessee family and the assessee was thereafter entitled only to the remaining two-third share in those properties. this view was upheld by the gujarat high court.5. it was pointed out to us by the departmental representative that, after the death of nathmal choudhary, his share had not been separated and provided to the legal heirs and as such, the huf should be considered to be still the owner of the entire property. this contention of the departmental representative is also not acceptable.the huf and the heirs of nathmal choudhary can hold the properties as tenants-in-common. we hold that one-third share of nathmal choudhary in the joint family properties ceased to belong to the joint family after his death.6. we also do not find any force in the further contention of the department that since, in the past, the huf had itself shown the entire property as being assessable in its hands, it was to be inferred that the legal heirs of nathmal choudhary had thrown the property in the common hotch-pot of the huf. we do not think that there is any scope for drawing an inference of the type. attention is drawn to the decision of the supreme court in the case of venkata reddi v. lakshmama [1964] 1 scj 45. in that case, butchi tirupati was one of the six sons of bala konda pulla reddy and lakshmama, son and widow respectively of butchi tirupati, instituted a suit for partition and separate possession of their one-fourth share in a certain property devised under the will executed by venkata konda reddy. venkata konda reddy had executed a will in july 1910 devising in favour of the four sons of his nephew bala konda, who were born before the date of the will. butchi tirupati was one of those four sons of bala konda reddy who were born before the date of the will. venkata reddy died in 1915 and the property devolved by virtue of the disposition under his will on the four sons of bala konda. it was contended by the defendants to the suit filed by pulla reddy and lakshmama that the property devised under the will of venkata konda reddy became, by subsequent blending, property of the joint family and the plaintiffs were not entitled to claim a share larger than the share that they had in the joint family property. two sons were born to bala konda reddy after the date of venkata konda's will, and they were not devisees under the will. hence, if the property was to be regarded as having been blended with the joint family property, then the share on partition would have been one-sixth, whereas the claim of the plaintiff was for one-fourth share. the supreme court held as under : law relating to blending of separate property with joint family property is well settled. property separate or self-acquired of a member of a joint hindu family may be impressed with the character of joint family property if it is voluntarily thrown by the owner into the common stock with the intention of abandoning his separate claim therein : but to establish such abandonment a clear intention to waive separate right must be established. from the mere fact that other members of the family were allowed to use the property jointly with himself, or that the income of the separate property was utilised out of the generosity to support the person whom the holder was not bound to support, or from the failure to maintain separate accounts, abandonment cannot be inferred, for an act of generosity or kindness will not ordinarily be regarded as an admission of a legal obligation. it is true that butchi tirupati who was one of the devisees under the will of venkata konda reddy was a member of the joint family consisting of himself, his five brothers and his father bala konda. it is also true that there is no clear evidence as to how the property was dealt with or as to the appropriation of the income thereof. but there is no evidence on the record to show that by any conscious act or exercise of volition butchi tirupati surrendered his interest in the property devised in his favour under the will of venkata konda reddy so as to blend it with the joint family property. in the absence of any such evidence, the high court was in our judgment, right in holding that lakshmama was entitled to a fourth share in the property devised under the will of venkata konda reddy.from the above decision of the supreme court, it is, thus, clear that to blend the separate property with the character of the joint family property, there must be a conscious act or exercise of volition. it was held by the supreme court that from the mere fact that the other members of the family were allowed to use the property jointly with himself, abandonment cannot be inferred.7. in the case under our consideration, there is no evidence to show that there had been any act of blending. the department cannot infer the impressing by the legal heirs of nathmal choudhary, of what they had received on the death of nathmal choudhary, with the character of the joint family property, only on the ground that the huf had in its returns for the past assessment years shown itself liable to be assessed in respect of that property.8. in this case another significant fact to be kept in view is that one of the legal heirs of nathmal choudhary was a female. the legal heirs of nathmal choudhary were his wife and their son ram autar choudhary.now it is established law that a hindu female cannot be coparcener and the doctrine of blending cannot apply to her. this was affirmed by the supreme court in the case of pushpa devi v. cit [1977] asc 2230. the supreme court held as under : 19. having considered the decisions cited at the bar it may be useful to have a fresh look at the doctrine of blending. the theory of blending under the hindu law involves the process of a wider sharing of one's own property by permitting the members of one's joint family the privilege of common ownership and common enjoyment of such properties. but while introducing new shares in one's exclusive property, one does not by the process of blending efface oneself by renouncing one's own interest in favour of others. to blend is to share in favour of others not to the exclusion of oneself. if a hindu female, who is a member of an undivided family impresses her absolute, exclusive property with the character of joint family property, she creates new claimants to her property to the exclusion of herself because not being a coparcener, she has no right to demand a share in the joint family property by asking for a partition. she has no right of survivorship and is entitled only to be maintained out of the joint family property. her right to demand a share in the joint family property is contingent, inter alia, on a partition taking place between her husband and her son (see mullets hindu law, 14th edn., p. 403 para 315). under section 3(2) and (3) of the hindu women's right to property act, 1937 her right to demand a partition in the joint family of the mitakshara joint family accrued on the death of her husband. thus, the expression 'blending' is inapposite in the case of a hindu female who puts her separate property, be it her absolute property of limited estate, in the joint family stock. 20. it is well settled that a hindu coparcenary is a much narrower body than the joint family and it includes only those persons who acquire by birth an interest in the joint or coparcenary property. these are the three generations next to the holder in unbroken male descent (see mulla's hindu law, 4th edn., p. 262, para 213). a hindu female, therefore, is not a coparcenary. even the right to reunite is limited under the hindu law to males (mulla's hindu law, 14th edn., p. 430, para 342). it does not therefore, militate against the fundamental notions governing a hindu joint family that a female member of the joint family cannot blend her separate property, even if she is an absolute owner thereof, with the joint family property.9. because of the foregoing discussion, we find it difficult to persuade ourselves to accept the contention of the department that the huf was assessable in respect of the entire property including one-third of the property which had devolved on the legal heirs of nathmal choudhary by succession. it is held by us that one-third of the property had come to devolve on the death of nathmal choudhary, on his legal heirs, by succession. hence one-third of the property ceased to belong to the joint family thereafter and the joint family was not assessable in respect thereof. we, hence, uphold the order of the aac on that behalf.10. another contention which is common to all the wealth-tax assessments for the assessment years 1978-79 to 1981-82 is that the aac was not justified in deleting a sum of rs. 64,000 on the ground that there had been a double addition of that amount in the computation of the total wealth of the assessee. on this matter we restore the appeals to the aac. we will direct him to decide the matter afresh after providing the assessee and the department an opportunity of being heard.11. in the cross-objection filed by the assessee in respect of the wealth-tax appeals for the assessment year 1978-79 it is contended that while determining the value of the house property at 16 times the rental income, a deduction was required to be given for the municipal taxes, etc., for the purposes of arriving at the net rental income. it is stated that the value determined without providing for such deductions is highly excessive. we find that this matter has not been considered by the aac. hence we do not entertain this ground as it does not arise out of the order of the aac.12. in the end, the income-tax appeals filed by the department for the assessment years 1980-81 and 1981-82 are dismissed. the wealth-tax appeals filed by the department for the assessment years 1978-79 to 1981-82 are only partly allowed, for statistical purposes. the cross objection of the assessee is dismissed.

Judgment:
1. Wealth-tax appeals filed by the department in respect of the assessments of the assessee pertaining to the assessment years 1978-79 to 1981-82 and the cross-objections filed by the department for the assessment year 1978-79 were heard together on 16-7-1986. Appeals filed by the department in respect of income-tax assessments of the assessee pertaining to the assessment years 1980-81 and 1981-82 were heard on 17-7-1986. After considering the rival submissions, these appeals and the cross-objections are being disposed of by a common order, as the main issue involved in these appeals is the same.

2. Shri Nathmal Choudhary, his wife and their son, Ram Autar Choudhary, were members of a Mitakshara undivided family. The HUF had owned certain movable and immovable properties. Shri Nathmal Choudhary died in 1959, i.e., he died after coming into force of the Hindu Succession Act, 1956. The assessee-HUF while filing its wealth-tax return for the assessment year 1978-79 claimed for the first time, that, on the death of Nathmal Choudhary, one-third share of Nathmal Choudhary in the joint family properties devolved on his legal heirs by succession and hence what had been left with the HUF was only the remaining two-third of the properties and thus the HUF was assessable only in respect of two-third of the properties. The wealth-tax returns for the subsequent assessment years, viz., assessment years 1979-80 to 1981-82 were also filed on this basis. In the income-tax returns for the assessment years 1980-81 and 1981-82 too, only two-third of the income of the properties was shown on the ground that the remaining one-third of the income had ceased to belong to the HUF on the death of Nathmal Choudhary when his share in the joint family properties devolved on his legal heirs by succession.

3. The main issue to be decided in these appeals is whether the assessee-HUF is assessable only in respect of two-third of the properties. The WTO (or the ITO) was of the view that the assessee-HUF was to be held to be the owner of the entire property and as such, it was liable to be taxed in respect of the entire property. The AAC, however, did not approve of this view. The AAC agreed with the assessee that, on the death of Nathmal Choudhary, his one-third share in the joint family property devolved on his legal heirs by succession and the joint family continued only with the remaining two-third of the property. Thus, according to the AAC, the HUF was liable to be assessed only in respect of two-third of the property. Being aggrieved with this decision of the AAC, the department has now come up in appeal before us. The contention of the revenue is that the HUF is liable to be assessed in respect of the entire property. The first contention raised by the revenue on this behalf is that it was an error to hold that, on the death of Nathmal Choudhary, one-third of the joint family property ceased to belong to the assessee-HUF. Secondly, it has been contended by the department that even if it was to be assumed that, on the death of Nathmal Choudhary, one-third of the property had gone to his legal heirs by succession, from the conduct of the parties, it was to be inferred that the legal heirs had thrown the property into common hotch-pot of the HUF. It is pointed out that all along in the past the assessee-HUF had itself shown this property as being assessable in its hands.

4. We have considered the matter carefully. We do not find it possible to accept any of the abovestated contentions of the department. On the death of Nathmal Choudhary, his one-third share in the joint family property devolved on his legal heirs by succession and that share ceased to be the property of the assessee joint family any more.

Nathmal Choudhary had died after coming into force of the Hindu Succession Act. The Hindu Succession Act made a radical departure in the devolution of interest of a coparcener in the joint family property on his death. Section 6 of the Hindu Succession Act reads, omitting portions which are not relevant for our purpose : 6. When a male Hindu dies after the commencement of this Act, having at the time of his death an interest in a Mitakshara coparcenary property, his interest in the property shall devolve by survivorship upon the surviving members of the coparcenary and not in accordance with this Act : Provided that, if the deceased had left him surviving a female relative specified in class I of the Schedule or a male relative, specified in that class who claims, through such female relative, the interest of the deceased in the Mitakshara coparcenary property shall devolve by testamentary or intestate succession, as the case may be, under this Act and not by survivorship.

Explanation I : For the purposes of this section, the interest of a Hindu Mitakashara coparcener shall be deemed to be the share in the property that would have been allotted to him if a partition of the property had taken place immediately before his death, irrespective of whether he was entitled to claim partition or not.

Devolution by survivorship was preserved except in cases covered by the proviso. In this case, however, the proviso becomes applicable in view of the fact that Nathmal Choudhary had died leaving him surviving his wife, a female relative specified in class I of the Schedule of the Hindu Succession Act. Hence, the share of the deceased coparcener, which would have been allotted to him on partition, if a partition had taken place immediately before his death, is to devolve on his legal heirs, i.e., his wife and his son, by succession. The HUF is to continue but the share of the deceased coparcener in the properties of the HUF having devolved on his heirs by intestate succession, goes out of the property of the undivided family. The HUF continues to be the owner of the remaining two-third of the property. The department is obviously in error when it says that on the death of Nathmal Choudhary, his one-third share in the joint family property did not cease to belong to the assessee-HUF and that the HUF was still the owner of the entire property. We will draw attention to the decision of the Gujarat High Court in the case of CWT v. Kantilal Manilal [1973] 90 ITR 289. In that case one K, his wife P, their unmarried daughter R, their son D, D's wife U, were members of the HUF owning properties. D died. In the wealth-tax assessment of the assessee-HUF, the Tribunal held that on the death of D, his one-third share in the joint family properties devolved on U and P and his one-third share ceased to belong to the assessee family and the assessee was thereafter entitled only to the remaining two-third share in those properties. This view was upheld by the Gujarat High Court.

5. It was pointed out to us by the departmental representative that, after the death of Nathmal Choudhary, his share had not been separated and provided to the legal heirs and as such, the HUF should be considered to be still the owner of the entire property. This contention of the departmental representative is also not acceptable.

The HUF and the heirs of Nathmal Choudhary can hold the properties as tenants-in-common. We hold that one-third share of Nathmal Choudhary in the joint family properties ceased to belong to the joint family after his death.

6. We also do not find any force in the further contention of the department that since, in the past, the HUF had itself shown the entire property as being assessable in its hands, it was to be inferred that the legal heirs of Nathmal Choudhary had thrown the property in the common hotch-pot of the HUF. We do not think that there is any scope for drawing an inference of the type. Attention is drawn to the decision of the Supreme Court in the case of Venkata Reddi v. Lakshmama [1964] 1 SCJ 45. In that case, Butchi Tirupati was one of the six sons of Bala Konda Pulla Reddy and Lakshmama, son and widow respectively of Butchi Tirupati, instituted a suit for partition and separate possession of their one-fourth share in a certain property devised under the will executed by Venkata Konda Reddy. Venkata Konda Reddy had executed a will in July 1910 devising in favour of the four sons of his nephew Bala Konda, who were born before the date of the will. Butchi Tirupati was one of those four sons of Bala Konda Reddy who were born before the date of the will. Venkata Reddy died in 1915 and the property devolved by virtue of the disposition under his will on the four sons of Bala Konda. It was contended by the defendants to the suit filed by Pulla Reddy and Lakshmama that the property devised under the will of Venkata Konda Reddy became, by subsequent blending, property of the joint family and the plaintiffs were not entitled to claim a share larger than the share that they had in the joint family property. Two sons were born to Bala Konda Reddy after the date of Venkata Konda's will, and they were not devisees under the will. Hence, if the property was to be regarded as having been blended with the joint family property, then the share on partition would have been one-sixth, whereas the claim of the plaintiff was for one-fourth share. The Supreme Court held as under : Law relating to blending of separate property with joint family property is well settled. Property separate or self-acquired of a member of a joint Hindu family may be impressed with the character of joint family property if it is voluntarily thrown by the owner into the common stock with the intention of abandoning his separate claim therein : but to establish such abandonment a clear intention to waive separate right must be established. From the mere fact that other members of the family were allowed to use the property jointly with himself, or that the income of the separate property was utilised out of the generosity to support the person whom the holder was not bound to support, or from the failure to maintain separate accounts, abandonment cannot be inferred, for an act of generosity or kindness will not ordinarily be regarded as an admission of a legal obligation. It is true that Butchi Tirupati who was one of the devisees under the will of Venkata Konda Reddy was a member of the joint family consisting of himself, his five brothers and his father Bala Konda. It is also true that there is no clear evidence as to how the property was dealt with or as to the appropriation of the income thereof. But there is no evidence on the record to show that by any conscious act or exercise of volition Butchi Tirupati surrendered his interest in the property devised in his favour under the will of Venkata Konda Reddy so as to blend it with the joint family property. In the absence of any such evidence, the High Court was in our judgment, right in holding that Lakshmama was entitled to a fourth share in the property devised under the will of Venkata Konda Reddy.

From the above decision of the Supreme Court, it is, thus, clear that to blend the separate property with the character of the joint family property, there must be a conscious act or exercise of volition. It was held by the Supreme Court that from the mere fact that the other members of the family were allowed to use the property jointly with himself, abandonment cannot be inferred.

7. In the case under our consideration, there is no evidence to show that there had been any act of blending. The department cannot infer the impressing by the legal heirs of Nathmal Choudhary, of what they had received on the death of Nathmal Choudhary, with the character of the joint family property, only on the ground that the HUF had in its returns for the past assessment years shown itself liable to be assessed in respect of that property.

8. In this case another significant fact to be kept in view is that one of the legal heirs of Nathmal Choudhary was a female. The legal heirs of Nathmal Choudhary were his wife and their son Ram Autar Choudhary.

Now it is established law that a Hindu female cannot be coparcener and the doctrine of blending cannot apply to her. This was affirmed by the Supreme Court in the case of Pushpa Devi v. CIT [1977] ASC 2230. The Supreme Court held as under : 19. Having considered the decisions cited at the bar it may be useful to have a fresh look at the doctrine of blending. The theory of blending under the Hindu law involves the process of a wider sharing of one's own property by permitting the members of one's joint family the privilege of common ownership and common enjoyment of such properties. But while introducing new shares in one's exclusive property, one does not by the process of blending efface oneself by renouncing one's own interest in favour of others. To blend is to share in favour of others not to the exclusion of oneself. If a Hindu female, who is a member of an undivided family impresses her absolute, exclusive property with the character of joint family property, she creates new claimants to her property to the exclusion of herself because not being a coparcener, she has no right to demand a share in the joint family property by asking for a partition. She has no right of survivorship and is entitled only to be maintained out of the joint family property. Her right to demand a share in the joint family property is contingent, inter alia, on a partition taking place between her husband and her son (See Mullets Hindu Law, 14th edn., p. 403 para 315). Under Section 3(2) and (3) of the Hindu Women's Right to Property Act, 1937 her right to demand a partition in the joint family of the Mitakshara joint family accrued on the death of her husband. Thus, the expression 'blending' is inapposite in the case of a Hindu female who puts her separate property, be it her absolute property of limited estate, in the joint family stock.

20. It is well settled that a Hindu coparcenary is a much narrower body than the joint family and it includes only those persons who acquire by birth an interest in the joint or coparcenary property.

These are the three generations next to the holder in unbroken male descent (see Mulla's Hindu Law, 4th edn., p. 262, para 213). A Hindu female, therefore, is not a coparcenary. Even the right to reunite is limited under the Hindu law to males (Mulla's Hindu Law, 14th edn., p. 430, para 342). It does not therefore, militate against the fundamental notions governing a Hindu joint family that a female member of the joint family cannot blend her separate property, even if she is an absolute owner thereof, with the joint family property.

9. Because of the foregoing discussion, we find it difficult to persuade ourselves to accept the contention of the department that the HUF was assessable in respect of the entire property including one-third of the property which had devolved on the legal heirs of Nathmal Choudhary by succession. It is held by us that one-third of the property had come to devolve on the death of Nathmal Choudhary, on his legal heirs, by succession. Hence one-third of the property ceased to belong to the joint family thereafter and the joint family was not assessable in respect thereof. We, hence, uphold the order of the AAC on that behalf.

10. Another contention which is common to all the wealth-tax assessments for the assessment years 1978-79 to 1981-82 is that the AAC was not justified in deleting a sum of Rs. 64,000 on the ground that there had been a double addition of that amount in the computation of the total wealth of the assessee. On this matter we restore the appeals to the AAC. We will direct him to decide the matter afresh after providing the assessee and the department an opportunity of being heard.

11. In the cross-objection filed by the assessee in respect of the wealth-tax appeals for the assessment year 1978-79 it is contended that while determining the value of the house property at 16 times the rental income, a deduction was required to be given for the municipal taxes, etc., for the purposes of arriving at the net rental income. It is stated that the value determined without providing for such deductions is highly excessive. We find that this matter has not been considered by the AAC. Hence we do not entertain this ground as it does not arise out of the order of the AAC.12. In the end, the income-tax appeals filed by the department for the assessment years 1980-81 and 1981-82 are dismissed. The wealth-tax appeals filed by the department for the assessment years 1978-79 to 1981-82 are only partly allowed, for statistical purposes. The cross objection of the assessee is dismissed.